Dividing Property and Debts in a Divorce

Normally, separating couples can work out a separation of property that they both feel is fair. But remember, until a judge signs off on your agreement and issues a final order, your community property and debts still belong to the 2 of you and do not become separate even if you have agreed on how to divide them between yourselves.

When you divide your property and debt, you should come up with an agreement that divides everything fairly equally, so that you each end up with roughly the same value of your property (and debt). Dividing your property does not necessarily mean a physical division.

For example, if you and your spouse or partner have 2 bank accounts, you do not have to split 1 account down the middle, split the money, and then do the same with the other account. Instead, you can see if the accounts have more or less the same amount of money. If they do, 1 of you can agree to take over 1 account and the other 1 takes the other account. If, in this same example, 1 account has a lot more money than the other, 1 of you can keep the bigger account, and the other can keep the smaller account but also get something else that, together with the money in the smaller account, adds up to roughly what is in the bigger account.

You can also use debt to balance out someone getting more of the property.

For example, if 1 spouse or domestic partner is taking something with a high value, like a house in which there is equity (value), it may be possible to equalize or balance out the division by giving that spouse or domestic partner the credit card debt.

Keep in mind that when you divide your property and debt, you are looking to come up with a roughly equal “net” share. This means that you add up the value of all of the property (assets) and then subtract the total amount of debt. What is left is the net value of the community estate to be divided between the parties.

Figuring Out How to Divide Your Property and Debts

A good way to start is to make a list of everything that you own. Then you need to figure out which items are separate property, which items are community property, and what the fair market value of each item is. You will have to do this to complete your divorce anyway, when you fill out a Schedule of Assets and Debts (Form FL-142). The Schedule of Assets and Debts is one of the forms you must exchange with your spouse or domestic partner in your financial declarations of disclosure. It is a requirement for divorces and legal separations.

In your Schedule of Assets and Debts (Form FL-142), each party must declare all assets and debts, including community and separate property, to the other. The most important thing to do is to be open and honest in listing everything of value you own. If you keep anything hidden, it tends to come to the surface sooner or later, and the penalties for hiding something of value can be very serious.

Once you have each filled out your Schedule of Assets and Debts, you can compare them to see if:

You disagree about whether something is community or separate; and

There is a big difference in how you value the community property.

This will help you decide whether the case can be settled or whether you will have to go to trial. After comparing the schedules, you can propose a way to divide the property and the community debt. Remember, your goal is to split up community property so that both you and your spouse or domestic partner end up with a roughly equal net share.

Special concerns in dividing debt

When you try to divide your debt, use caution.

Sometimes spouses or domestic partners try just taking the entire amount owed and dividing it in half — so, for example, 1 party takes half the credit cards and the other takes the other half. They may even put this in a written agreement. But this may not be a good idea. When you make agreements between yourselves to pay off debt, you need to remember that the people you owe the money to do not have to honor your agreement with your spouse or domestic partner. They can go after the spouse or partner that signed the contract (like a credit card application), regardless of which of you agrees to be responsible for the debt.

For example, if you have a credit card in your name, but your spouse or partner agrees to pay it off to balance out other property or debt you are dividing, that credit card company can still go after you (as well as your spouse or partner). So, if your spouse or partner misses a payment, the credit card company will go after you because as far as they are concerned, it does not matter what your divorce agreement is. You may end up paying not only the balance on the card, but also the interest and late fees, and your credit rating will probably be damaged as well.

To avoid these potential problems with dividing debt, consider:

In cases where there is real property that will be sold, spouses or domestic partners often agree to pay the credit cards using the money they get from the sale of that property.

Another possible option is that the person who is to pay the joint credit card gets a new credit card in only his or her name and does a balance transfer.

Problems after the property and debt is divided

Once you have divided your property and debt either through a marital settlement agreement (MSA) or a court judgment specifying who gets what, you may need to follow additional steps if your ex-spouse or domestic partner will not follow your agreement or the court orders.

If your marital settlement agreement (MSA) was “merged” or “incorporated” into (became part of) your judgment, then you can enforce it like any family law money judgment. Read the section called Collect Your Family Law Money Judgment for information and instructions to follow.

But if your MSA was not merged or incorporated into your judgment, it is treated like a contract and not a judgment. This means you cannot enforce it as you can enforce a money judgment. If you want to enforce any of the terms, you have to file a civil case for breach of contract and get a judgment through that civil case.

You may want to talk to a lawyer about how to file a civil case for breach of contract. Click for help finding a lawyer.

Financial mediation

Mediation may help you solve disagreements about money issues and how to divide your property. You can hire a private mediator to help you work out a fair way to divide your property and debts (as well as other issues in your divorce like support or custody and visitation of your children). Private mediators are usually lawyers or mental health professionals. They generally charge between $50 and $250 an hour. Usually both people share this cost. Learn more about how mediation can help you.

Pension Plans

A pension can be more valuable than any other asset acquired during the marriage or domestic partnership, including a house. It may be worth more than all of the other assets put together.

It is a good idea to have a lawyer’s help any time you have a valuable asset, but this is even more important when you are dealing with a pension. The reason is that special rules apply to pensions. These are very technical and do not apply to any other kind of asset.

If you or your spouse or domestic partner have a pension plan, make sure you attach to your divorce judgment paperwork a Pension Benefits — Attachment to Judgment (Form FL-348). This form gives you instructions on what else to do.

In some cases, a pension plan must be “joined” as a party in your divorce case before a judge will issue an order about how the pension will be divided. Read the Retirement Plan Joinder — Information Sheet (Form FL-318-INFO) to figure out if your or your spouse’s or partner’s pension plan must be joined in your divorce case.

The court order that details how the pension (or pensions) will be divided is called a qualified domestic relations order, or QDRO. The QDRO must be approved by both the benefits provider and the judge to assure that the spouse/partner that is not the employee of the company or organization will receive those future benefits. This is not a standard court form. QDROs are extremely complicated. If you make a mistake, there can be harmful results. It is worth paying a lawyer to correctly prepare the QDRO for you. Click for help finding a lawyer.

IMPORTANT!!! If you are in a domestic partnership or same-sex marriage, talk to a lawyer. Federal laws apply to pension plans, and recent court decisions have resulted in the recognition of federal benefits and rights for people in same-sex marriages (in states, like California, where same-sex marriages are legal), which may affect how pension plan division and other issues governed by federal law will be resolved. Similarly, the impact of federal laws on pension plans or other federal taxes and benefits on domestic partnerships may also be complicated to figure out on your own. So make sure you understand how federal law currently applies to you and your situation. Click for help finding a lawyer.